Crowdfunding: Go fund yourself

Want to write a book? Make a movie? help someone in need? Hop on to one of the many crowdfunding sites and ask for a few dollars, writes Alan Perrott.

The crowd-funding trend has taken over. Photo / Thinkstock

I've just helped write my first book.

Well, to be clear, I didn't type a word, create an image or edit a single page. But I played a pivotal role. Okay, my money did, and it wasn't even that much, probably just enough to buy the real author a bit of lunch. So, let's just say I and a whole bunch of others helped write a book.

That's how crowdfunding works.

It all started last year when a woman went online to declare: "I'm writing a graphic novel about Nikola Tesla, who's with me!" Then a few timewasting webcrawlers like me read it and flicked her a few bucks in exchange for a promise to send us a copy when she was done.

Now we all had a vested interest in her success. If she hadn't reached her stated target in the stated time, then all donations would have been returned and I wouldn't be flicking through my brand new comic, sorry, graphic novel.

It's nothing new, of course; back in the 80s, my old band presold an album so we could afford to record it, except no one said we were cutting edge.

No, we were called scroungers. So what's changed? How has scrounging 2.0 become such an astonishingly recession-proof business model? Because it seems the sites hosting pleas for cash are thriving, wherever they pop up.

According to one estimate, crowdfunding websites raised more than $6 billion worldwide last year, almost doubling their total for 2012. One US crowdfunder, Kickstarter, has announced that its total pledges since launching in 2009 have topped $1 billion. It's a win/win as well given these sites generally keep anything from 5 per cent to 10 per cent of the money raised (credit card companies also take a cut).

If they're happy now, they're about to get a whole lot happier as governments, including New Zealand's, legalise the crowdfunding of businesses. Instead of investing in just one comic, I can now throw my cash at a nerd trying to open their very own comic shop.

And don't doubt that there will be a queue forming behind me - we seem to be more than willing to give money away on the flimsiest of pretexts. Take hungry David Leeh Correos, for example. On January 28 a post and accompanying video appeared on New Zealand crowdfunding site PledgeMe presenting him as a man in dire need of some KFC and no money to pay for it: "I'm real keen on a feed ae [sic]. I'm gonna try [to] raise $39 bucks so I can buy a family feast and a bus ride there. This project is pretty small and helping out would be legit as! Come on and [help] me out cause it's never cool being a sad guy."

His pitch proved so attractive that by the time it had closed he'd been given $164 and a family feast voucher. As a result he's now promising to put the entire pot into buying everything on the KFC menu.

The kicker is, though, that he's something of an aspiring comedian (his YouTube clip on how to dress like Miley Cyrus is knocking on 840,000 views) and his request was more about crowdmarketing than filling an empty belly. But no one cared, his cheek appealed and that was reward enough for giving. He's far from alone in co-opting the system, lots of small businesses have taken to using project proposals as free advertising - New Zealand tonic water company Quina Fina has kicked off a Kickstarter campaign for a research project into the future of quinine-producing cinchona trees in the Andes.

So why aren't we all doing it? Especially as there appears to be millions of us cruising the net looking for opportunities to empty our wallets.

Well, it's not as easy as you might think, says film-maker Taika Waititi who, in 2011, raised $100,000 on Kickstarter to part-fund the US distribution of his film Boy.

"Actually, it's a huge hassle, a massive hassle ... and I know that I can't complain because we reached our goal, but that was just one part of it."

The other parts included recording weekly video updates for donors and the obligatory inducements to give cash, which become more elaborate and time-consuming depending on how much people are willing to pledge. In Waititi's case these started at hand-drawn, personally signed sketches and ended at copies of the helmet his character wore in Boy.

"I didn't really think it would work at all, then the more people who took notice the higher the donations got and it became a kind of social media thing. Then when we'd raised the money, the company that organised it moved on to something else and I got kind of stuck with it all and had to make all these helmets and shit. That ended up costing me and the US producers money to make and then send all that stuff out ... in retrospect, it's not worth it, not for just one person."

As a result, some of the goodwill the venture created - and that was their real purpose here; the money they raised covered only a third of Boy's distribution costs - evaporated as donors went online to complain about how long their rewards were taking to arrive.

"So I'd recommend [crowdfunding] as a last resort really, exhaust all other channels first. I know a bunch of people who have done it with varying degrees of success for books, art, inventions and all that. And all of them, just everyone, has said the hassle involved was huge."

At least Auckland scientist Dr Siouxsie Wiles knew what she was in for. But given she was only after $5000 to part-fund an anti-bacteria experiment, how much hassle could it be?

Three hours a day for a month, as it turns out.

Still, she says, "I'd definitely do it again, I loved it, but only when things aren't quite so busy ... it was exhausting."

Again, Wiles was more interested in getting people talking about science than the money.

She had a game plan, too. First, she joined Twitter and blogged more regularly - as with anything social media, everything hinges on establishing networks - then she tapped her family: "You always need your nearest and dearest, and I made sure they were ready with a donation the moment my post went live. You need to have money on board early to attract donors."

From there it was a matter of tweeting thanks to everyone who donated as soon as she could, updating her videos, hitting up the media for coverage, and generally getting the word out to everyone she knew that she needed help.

As incentives, people who gave a set amount were asked to send her photos or logos which she then returned as a painting using fluorescent bacteria. Higher rollers were offered the chance to name the new bug strains her team hoped to discover. Her fundraising was done in May 2012 and she's only now getting to the last phase, where there will be bacteria in need of names, so remember, she says, be prepared to be in for the long haul.

Over the month her crowdfunding project ran, she pulled in about 90 donors of whom she knew about half personally - and that's the thing, as a general rule about 80 per cent of the people who give money will be your friends or family. It's the failure to extend beyond this circle that sees more than half of crowdfunding attempts fail to reach their goal. That didn't put Wiles off though ­- the odds were still a lot better than applying for a science grant, where success hovers somewhere around the 5 per cent mark.

It's a rare pitch that goes viral, but when they do they become legend, like the guys behind the Pebble Smartwatch, a device that can connect to iPhones and some Android gadgets. They wanted US$100,000 and ended up with more than US$10 million after offering free devices to any donor giving more than US$150 - the backlog caused by the mass uptake saw most still waiting for their freebie after the watch began appearing in stores. They weren't well pleased.

A lesson learned. Another lesson Wiles learned is to ask for less than you really want: "People love to back a winner and they'll keep putting in after you've reached your goal. So aim low but tell them what else you could do if you got even more."

But what of the people who facilitate all this giving and taking?

Let's just say they are excited about the potential applications of our generosity. We might be behind most other countries, and there's nothing we can do about our comparatively tiny pool of donors, but there are new tangents to explore and we're catching on quickly.

Sites like Snowball Effect were primed and ready for the passing of the Financial Markets Conduct Act, which opened up the possibility of crowdfunding businesses, while another hopeful, Public Eyes, is seeking charitable status so it can begin promoting donor-funded journalistic investigations.

Then there are Gimmie Five co-founders Dan Drupsteen and Jimi Hunt, who attracted international media attention last November with their world record-setting water slide.

This, too, was crowdfunding in action, if with a side order of mental illness awareness.

Drupsteen and Hunt have dealt with depression and, as a way of giving back for the support they received, they invited people to pay a $5 monthly subscription enabling them to vote for a project to spend the collected money on. Since the slide there's been a water balloon war, an adults-only bouncy castle, a vegetable garden for an Auckland school and help given to an 81-year-old man for his wife's funeral expenses.

"You might think the whole idea was a punt, a bit stupid, but we did a lot of research on what's working overseas," says 34-year-old Drupsteen.

"The key here is that these are things people want to join in on by appealing to everyone's inherent goodness. We believe people do want to help, we're just giving them a platform to do so and have some fun doing it."

They are now pushing the idea of gratitude journals in primary schools, where students will spend a couple of minutes a week listing five things they are grateful for: "It's simple, doesn't put an added burden on teachers, and they have been shown to work. We'd like to be able to fund one in every classroom."

For Anna Guenther, founder and sole full-time staffer of PledgeMe, crowdfunding cuts out all the financial middlemen and tastemakers who usually decide where the money flows - a concept that caught her imagination during a research trip to the US in 2011.

After starting in February 2012 with successful pitches for a photographic exhibition and an eight-piece band, PlegeMe has funnelled about $2.5 million, minus their 5 per cent margin and the 2.8 per cent that goes to the bank. They posted 159 projects in their first year, 360 in their second and look on course for further growth this year, with an overall success rate of 49 per cent.

But without the huge viewer numbers sites like Indiegogo and Kickstarter can boast, her emphasis is on using our much-derided two degrees of national separation to create a community willing to support new ideas. Other than that, it's democracy in action.

"We don't decide if anything is good or not," says the 28-year-old Wellingtonian, "that's up to you and your crowd: 'Should we fund this or not?' So really, you could say it's not so much crowdfunding as crowdmarketing, we simply provide the opportunity you have to make work yourself."

And these opportunities really can be about anything (as long as it's legal). We've already met hungry David, but a couple of Guenther's favourites have been the class of 11-year-olds wanting to exhibit their art, the 82-year-old man now in the process of recording his debut solo album and the short-film-maker who offered to jump into freezing water shouting the name of each donor and ended up with borderline hypothermia after 43 people took him up on it.

One group, though, is proving very hard to get on board: famous people and big-name organisations. High-profile pitches are always the most likely to break into the wider media and, given how quickly social media can create a frenzy, for good or ill, Guenther says the big names are reluctant to risk the mockery that would come from tanking.

For instance, Wiles is incredulous that universities haven't adopted the model to supplement their meagre research funds via alumni networks.

Even Nathalie Whitaker, who runs the Givealittle charity site, struggles to attract interest among the big players. Why should we, they say, when we've got our own fundraisers, phone lines and websites? Except that their inertia has allowed the growth of micro-funding sites, such as Kiva, where from the comfort of your home you can lend a small amount to a budding third-world business or a remote community and then watch every step of what they do with every dollar - it's a level of transparency that's impossible for the likes of Red Cross and World Vision.

Givealittle has a few other advantages as well - for one thing it charges no fees. All of their costs are covered by the Telecom Foundation. In addition, projects don't have to set funding targets, instead they simply keep whatever they are given. The only controls are self-policing within the site's community and a requirement that every pitch comes with three guaranteed donors. All subsequent pledges are then held in trust for a short period to allow time for any necessary refunds.

Whitaker started off in Wellington running charity events, if only to prove that Generation Y-ers care about more than themselves, and gradually ramped up her ambitions until, with some friends, a website was built using funding provided by a group who'd benefited from the Trade Me sale to Fairfax.

They knew they'd hit on something special when, three months after the site went live in December 2008, they presented the case of New Zealander Julie Swinden.

A serious motorcycle accident had left her needing treatment well beyond the North Vietnamese hospital she was in, but her family couldn't afford to help and she'd been away too long to get ACC funding. Hoping for just $200 to get her to a better hospital, they ended up raising $14,000 in only four days. "That was the first time I really saw the power of networking in a small country," says Whitaker. "People were contacting her via Facebook, emailing her, and sharing what was happening with others. They could see this was a real person in real need in real time and they were able to do something about it very quickly."

The potential of her website seems huge. Since 2008, Givealittle has raised $8 million, and its growth has accelerated hugely since Telecom came on board. Having averaged about $50,000 a month, the last quarter saw that figure leap to $600,000.

"At the end of the day we're just a tool," says 29-year-old Whitaker, "one that has literally changed lives and I've seen that there is a definite knock-on effect from such successes. People have got lifesaving operations or drugs and they are all stories that are real and current, but they are also stories where failure can mean the difference between life and death. But we can't market individual cases. Aside from trying to make sure no one is being mislead, we remain neutral. Our intent is simply to create a healthy ecosystem for people who want to give money away and the people who need it."